Joel Fitzgibbon (Hunter, Australian Labor Party, Shadow Assistant Treasurer and Revenue) Share this | Hansard source

It is appropriate that we are discussing a tax bill just the day after the Treasurer announced his tax inquiry to be headed by Mr Hendy and Mr Warburton. The Treasurer says this is an essential benchmarking study to determine how we should go forward on tax reform in this country. I do not believe such a study is necessary. Labor will welcome any findings which come forward from the inquiry which assist us in our policy development processes, but what needs to be done on tax reform in this country is clear. We believe the Treasurer knows what has to be done; it is only about having the political will, both internally and externally, to implement that reform. We have to have greater simplification, we have to restore incentive to our tax system, we have to reduce the compliance cost burden and we have to improve our international competitiveness. Like most people in this place, I would like to see much of this funded through a broadening of the tax base and some tidying up of some looseness in a range of arrangements, including the great blow-out in work related tax deductions—and the list goes on and on.

If we are going to have this international benchmarking study of Australia’s taxation regime, I appeal to Mr Hendy and Mr Warburton to ensure that it reaches out to and includes the impact of our taxation arrangements on lower income Australians and its interaction with the social security and family tax benefit systems. Just as importantly, the study should benchmark Australian small businesses and the burden they face in both the payment of taxation and the costs of collecting GST receipts and remitting them to the government. This is an important test. Small business faces significant tax and compliance burdens. It is time for us to assess how small business in Australia is faring in that regard in comparison to small business in other nation states. I appeal to the Treasurer and to Mr Hendy and Mr Warburton to have a look at the extended issues I have proposed this evening.

I turn to the schedules of the Tax Laws Amendment (2005 Measures No. 6) Bill 2005. Schedule 1 of the bill recognises the losses from merging companies based on the proportion of a company’s market value. When companies merge, the issue of carrying forward a loss is vital. If the new company is worth less than half a per cent of the total group value, then the losses cannot be recouped. This provision allows for losses of less than half a per cent by permitting another decimal point to be added to the calculation process, with a floor level of 0.1 per cent. This will provide for losses to be recouped when the joining entity represents less than 0.49 per cent of the total market value of the group. This is the 12th amendment to the consolidation rules in just two years. The government has, in my view, created a degree of uncertainty by failing to deal with the consolidation measures in a single comprehensive bill, but Labor supports the proposal.

Schedule 2 is vital to the survival of the registered clubs industry. It retrospectively restores the tax-free status of clubs and other not-for-profit groups, which was taken away by a recent court decision. Up until the Federal Court decision, known as the Coleambally case, the proportion of a club’s income—poker machine receipts, bar takings and dining room takings—which related to members was considered to be tax free. But the decision in the Coleambally case ruled that this should apply only where the members’ funds are distributed to members when the entity is being wound up and where the articles of association, or the charter of the club, indicate that to be the case.

This bill clarifies that, since the decision on 1 July 2000, the tax-free status is not determined by the restriction on winding-up. This bill must be supported by the government because the future viability of the club sector requires it, and Labor will be supporting the change. Clubs are more than just a place for family gatherings. They play a vital role in the community by providing people with a place to meet and by providing significant charitable contributions to a number of worthwhile organisations. On that basis, Labor is more than happy to support the correction of the implications coming out of this unfortunate decision by the Federal Court.

The third schedule ensures that the new activity test for the child-care benefit does not restrict eligibility for the new child-care tax offset. The government has made changes to the activity test requiring a work test or study/training test of 15 hours a week. Labor pointed out at the time that this would restrict eligibility for the new child-care tax offset, which the government has now accepted. On that basis we will be supporting this schedule of the bill.

The bill also amends the medical expenses offset so that purely cosmetic and dental expenses are ineligible medical expenses and cannot be claimed under the MEO. Therefore, expenses which are cosmetic in nature and do not attract a Medicare benefit are considered ‘ineligible medical expenses’ and are excluded from the medical expenses offset. Labor supports the clarification.

Schedule 5 of the bill proposes that new organisations be added to the lists of deductible gift recipients and also extends the time for which deductions are allowed for gifts to a fund that has time-limited DGR status. Organisations to benefit from this amendment include the CEW Bean Foundation, which wants to build a memorial and develop an honour roll in tribute to war correspondents killed in conflicts since 1885, the Australian Red Cross and the Salvation Army, which set up the Hurricane Katrina appeal to help in the disaster relief effort in the aftermath of Katrina, which has left southern areas of the United States devastated, as members would know. This amendment will also see the Xanana Vocational Education Trust added to the deductible gifts register. The trust develops vocational education and training in East Timor by subsidising education and awarding scholarships to young people. On the basis of all that I have just outlined as to those extensions, Labor is more than happy to be supporting the proposed changes.

At this stage I would like to move the second reading amendment standing in my name, which I hope has been distributed. It relates to the very important current issue before the House: our concern about the tax deductibility of so-called facilitation payments and how those are related to the controversy that has taken place over the AWB kickbacks scandal. Those payments, as we now know, were used to fund the various activities of the former Iraqi leader, Saddam Hussein, and are now potentially funding the activities of those insurgents operating in that country. I move:

That all words after “That” be omitted with a view to substituting the following words:“whilst not declining to give the bill a second reading, the House: calls on the Government to align the definitions of facilitation payments under the Criminal Code and the Income Tax Assessment Act 1997 and to refer this matter to the Standing Committee on Economics, Finance and Public Administration for urgent inquiry”.

This second reading amendment, which we will be forcing to a vote, so giving the government an opportunity to support it, seeks to encourage the government to give a reference to the Standing Committee on Economics, Finance and Public Administration and to look at more generally the idea of aligning the Criminal Code with the Income Tax Assessment Act as it relates to facilitation payments. We have this extraordinary situation in Australia right now where under our Criminal Code we have a definition of what constitutes a facilitation payment but under our tax act we have no such definition, so I am proposing that the House and the government align these two pieces of legislation. This is not a radical move by any stretch of the imagination. I think it is a sensible move and one which should be supported by every member of this House and members of the other place. I have considered moving this as a detailed amendment giving effect to this change, but I do not want it to become a political hot potato in this place. I want to give the government an opportunity to embrace the idea of making the change and to bring us in line with the OECD’s view that the Australian government has failed to do all that is possible to reduce the proliferation of these facilitation payments and of course their tax deductibility.

If you were looking at this in an ethical sense, Mr Deputy Speaker, you would not be allowing tax deductibility for facilitation payments. What is a facilitation payment? A facilitation payment is a payment to what could be and probably is a corrupt official in another nation state to do something that he would not ordinarily do in a particular space of time if a payment were not made. There is probably a case to be made that such payments should not be tax deductible, because what we are doing is perpetuating a corrupt regime or those processes in other nation states. But Labor understands that we are not living in utopia, that these methods are required in some nation states and that Australian companies looking to invest and grow their business, for the benefit of their shareholders, in some nation states do find it necessary to make these facilitation payments from time to time. So Labor is not suggesting that facilitation payments be ruled out as tax deductions. We are saying that we must rein these in, as recommended by the OECD, to ensure that they are not being used any more than is necessary for us to operate in those nation states.

Surely no-one would suggest for a moment that a $300 million kickback payment in the wheat scandal is a facilitation payment. We have had admissions in the Cole inquiry that that $300 million payment was claimed as a tax deduction. We do not know at this stage how it was claimed as a tax deduction. It is likely that it was claimed as a transport expense—I accept that is a possibility—but it is just as likely to have been claimed as a facilitation payment; we do not really yet know. But what we do know that there is a disparity between the Crimes Act and the tax act. The tax act makes no attempt to give a definition of a facilitation payment. On that basis, as a legislative body or as a wider, broader community, we cannot have any confidence that, if AWB had sought to claim it as a facilitation payment, that claim would not have been successful. I am not suggesting that the Criminal Code is perfect. It talks about measuring the size of the facilitation payment and deeming it to be minor. That is not totally acceptable, but you would have to say that defining it as minor is a lot better than not defining it at all. So I think the opposition is being responsible in not moving a detailed amendment, thereby giving the government an opportunity to embrace what Labor is putting forward and to accept a very reasonable proposition.

I asked the Assistant Treasurer and Minister for Revenue, Mr Dutton, during question time today whether he would support this measure. Obviously, he did not understand the question. It was a pretty simple question: will you support the alignment of the two acts or not? Minister Dutton responded by saying there is no need to make any legislative change and then went on to suggest I was suggesting asking the Commissioner of Taxation to intervene in some way. We know that is not appropriate. We know the tax commissioner acts independently—and so he should. We are suggesting changing the law so that in future—forget AWB for a moment, as important as that is—large payments, potentially corrupt payments, are not made under the guise of what are known as facilitation payments.

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